I use fabric sheets that are made to run through your inkjet printer and are color fast. They are easy to use. After you have run them through the printer you just peel the paper off the back, run the fabric under cold water, and then set the color with an iron. I buy mine at JoAnn Fabrics with a coupon because they aren't cheap.
I designed the labels on my computer making sure to leave space for folding them in half and a seam allowance. They measure just under 2" square. I wanted the flowers different colors so that I had different choices when I pick one out for a quilt.
From here I just cut them out and there's no need to turn edges under. I just fold them in half and stitch them into the seam as I am machine sewing my binding onto the quilt. Once they are in the quilt they wash up nicely and don't fray.
They are pretty tough to stitch through when I am hand stitching the binding down but I just get out my thimble for that part.
I hope this is enough info for you to make some of your own labels. If you have any questions don't hesitate to ask. If I don't write you back it is because your e-mail is set to "no-reply comment" so when you leave me a comment I don't have any way of contacting you. I found some directions here to make sure bloggers can e-mail you back when you leave a comment. You might want to check even if you think you are all set.